JOHANNESBURG (miningweekly.com) – Tough industry conditions over the past year have driven the profits of the top 40 global mining companies to their deepest depths in a decade, a report by professional services firm PwC has shown.
According to PwC’s eleventh yearly ‘Mine’ report, titled ‘Realigning expectations’, which analysed the world’s 40 largest miners by market capitalisation, record impairments of $57-billion were recorded in 2013 with net profits having declined by 72% to $20-billion.
“2013 was a year that forced miners to really look in the mirror and realign what it is that they [have] to do in terms of their strategy with the realities in the environment in which they operate,” PwC energy and mining assurance partner and deputy regional senior partner Dion Shango said at a press launch of the report on Thursday.
He also pointed out that the market capitalisation of the top 40 largest mining companies fell by $280-billion, or 23%, year-on-year in 2013.
Gold miners, which were particularly affected by a low price, which declined by 28% during the year, were the hardest hit, with this mining sector having lost $110-billion of its market capitalisation, representing 40% of the total 23% year-on-year decline.
However, despite these challenges, it was interesting to note that dividends paid by these companies continued to rise, said Shango.
Gross dividends paid increased by 5% in 2013, while dividend yields were up 4%. The total of $41-billion in dividends paid out was double the companies’ net profits of $20-billion, he pointed out.
PwC energy and mining assurance partner Andries Rossouw said this was as a result of mining companies making use of the cash they had on hand, as they were not investing in as many new projects, combined with shareholders putting pressure on the companies to return some of their cash.
However, given the uncertainty surrounding commodity prices, these levels of shareholder returns might not be sustainable for much longer, Shonga said, adding that this was evident in recent changes in dividend policies.
Further, the report also found that, for the first time, in 2013, the majority, or 53%, of the 40 largest mining companies came from emerging markets.
The change in the global mining landscape also saw a divergence in the collective performance between emerging market companies and their developed market counterparts. Collectively, emerging market mining companies contributed aggregate net profits of $24-billion in 2013, while their developed market counterparts suffered an aggregate net loss of $4-billion, impacted particularly by impairments, the report noted.
Rossouw pointed out that cost saving initiatives implemented by mining companies had not yet come to fruition, with many miners still reporting increases in operating expenses; however, early 2014 reporting indicated that these initiatives were starting to show some success, with gold companies particularly reporting substantial all-in cost reductions.
He added that, in the long term, the mining industry had the right demand-side fundamentals; however, companies would have to supply that demand at the right cost and margins to remain sustainable.
“The question is [also] whether the short-term demands that are currently out there from the shareholders, government and labour, can be managed to realign the expectations to create a long-term sustainable industry,” he said.
Shango stated that it was clear that these short-term focuses and demands had the potential to undermine the long-term sustainability of the industry.
“As long as that continues, we will sit in this low confidence environment that continues to suppress commodity prices, which, in turn, will make it difficult for mining companies to viably get into new projects and to continue delivering returns for all stakeholders in the long term,” he said.